In real estate law, representations are very important elements to any agreement of purchase and sale. Typically the party selling the property will represent things such as the size of the land, the size of the dwelling, that the chattels and fixtures included in the purchase price are free and clear of encumbrances and in working order, etc. In law, a representation is defined as a statement of past or present fact without the statement necessarily also being a promise, although the law has recognized that a representation can be both a promise and a representation. While the topic of representations in contracts is extremely comprehensive, 756289 Ontario Limited et al. v. Milan Harminc, (1998) CarswellOnt 1577, 98 G.T.C. 6206 (“Harminc”) is one example of where a representation affected a real estate transactions with respect to the representation of square footage.
Harminc is a case wherein a buyer purchased a commercial condominium property from a builder. The buyer refused to close and the builder sued the buyer for breach of contract and sought damages. While the defendant buyer advanced a number of arguments for his defence, the case turned on whether the builder misrepresented to the buyer the square footage of the property and if so, whether that misrepresentation was material enough to entitle the buyer to rescind the contract and refuse to close.
Whether or not someone can rescind an agreement of purchase and sale, meaning that the contract is at a complete end and the parties can forego their contractual obligations to one another, depends on the nature of the misrepresentation. The equitable remedy of rescission in a real estate transaction is available for a misrepresentation when the following elements are present: (1) There is a false statement; (2) the false statement is material enough to induce the buyer into entering into the agreement; (3) the false and material statement must have induced the buyer into the agreement; and (4) the innocent party raises the objection prior to closing the transaction, unless the statement is fraudulent, in which case rescission may be available before or after closing.
The builder in Harminc represented to the Buyer that the commercial unit had 785 of “rentable square feet”, calculating “usable space” and “common area space” together in order to come up with the agreement term “rentable square feet”. The actual space without the common area was 485 square feet. Accordingly, this was a difference of sixty (60) dollars per square foot pursuant to the purchase and price and in the trial judge’s view; this was a material misrepresentation and the buyer was entitled to rescind the contract and refuse to close even though speculatively, the buyer may have other motives in refusing to close.
Today, builders are careful to not misrepresent the square footage in their agreements however; buyers must be careful and should carefully read the provisions in the agreement of purchase and sale with respect to how square footage is calculated. A typical builder agreement states that square footage is calculated from the exterior walls of the dwelling from corner to corner meaning that the square footage is actually less than the actual “liveable” or “usable” space. Moreover, if the property is a condominium unit and contains a balcony, sometimes a builder will also include the balcony as part of the total “liveable” “usable” square footage even though the balcony is an exclusive use common element and not actually owned.
Although this case dealt with a commercial condominium unit, the same principles would apply to a residential one.